It is one of the most commonly used mode of investment followed by the Islamic Banks in Bangladesh. HPMM and HPSM both follow the same basic principles of investment. In HPSM (Bai bil Ijarah) bank participate in the form equity jointly with the client for purchase of an asset as per agreement, lease out the asset to the client against rent and client gradually pays back the bank investment in installments within stipulated time as per agreement.
Hire Purchase under Shirkatul Melk is a synthesis of three contracts:
- Shirkat
- Ijarah and
- Sale
SHIRKAT
Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract
IJARAH
The term Ijarah (lease) has been deribed from the Arabic words Ajr & Ujrat Which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an Asset. Ijarah has been defined as a contract between two parties, the Hiree and Hirer, where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.
SALE
This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the buyer.
Salient Features:
- This is a mode of investment is usually used for long term/project finance requirement of the client.
- The Bank purchases goods for the client taking an agreed upon margin and a risk weighted fund
- The ownership is usually transferred to you after the rental period.
- Client has to pay a fixed rental throughout the rental period with principal amount.
